Measurement and modelling of liquidity risk under the Basel III rules

Abstract

In compliance with Basel III rules this study aims to create a model capable of generating a balance sheet. In the light of several hypotheses and general data about Turkish Banking System the model generates a balance sheet and, hence Basel III liquidity ratios could be set their threshold values. Besides, with the sensitivity analysis possible impacts of balance sheet structure on the Liquidity Coverage Ratio which promotes the short-term resilience of the liquidity risk profiles of banks have been revealed. Since the model allows that all the input hypotheses can easily be changed, it has such flexible structure with instant generation of new balance sheet. Consequently, to simulate the impact of different management choices on the bank’s general position would be probable.